Are Higher Priced Stocks Really Safer?

by: Adam Alvarez

It was December 2004 when The Washington Post (WPO) flirted with $1,000 a share. After shares had surged $330 over the previous 15 months, however, they promptly stalled at $999.50. They had come so close, but still seemed so disturbingly far from conquering the ultimate apex.

Nearly eight years later, shares sit at $366. The chances of the stock returning to challenge $1,000 have all but faded. Investors can't blame earnings or a lack of a dividend for the collapse. With a respectable P/E ratio of 13 and an annual dividend of $9.80, the reasons for the pullback in shares remained much more basic in nature. Shares had risen too far, too fast. They had reached a price investors were simply unwilling to pay. No earnings report or upgrade would ever be enough. Shares simply could not go any higher.

As investors, we tend to flock to the shares of the higher priced and more well-known companies. They add a form of security so hard to discover throughout the investment landscape. Still, shares can be too recognizable. They can go too high. They can turn from dependable to riskier than the stocks we initially looked past in the midst of our due diligence.

Thus, as we fast-forward to today's current market environment, the question should be asked: Are stocks such as Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) really safe investments?

As for Apple, shares briefly crossed $700 before encountering a resistance-induced sell-off. Still, the company's stock remains pricey at over $650 a share. A $300 run over the last year also disturbingly mirrors that of The Washington Post before sellers finally took hold. Top that off with the fact the company missed on second-quarter earnings as customers awaited the latest iPhone, and the possibility of the stock continuing to surge grows increasingly uncertain.

Speaking of the iPhone, even the much-anticipated release of Apple's latest innovation hasn't come without negative repercussions. The highly publicized faulty mapping software drew significant ire against the company, considering it came after Apple had removed Google's mapping software from its iPhones and iPads. It's a disturbing sign that the company has put its own interests and competitive take-all mentality ahead of its customers. Overall, it's a pattern that may eventually prove unsustainable.

Next is Google. As shares have enjoyed record highs and a recognizable $200 bounce in just the past four months, the stock appears at first glance to offer investors every form of security possible outside of a dividend payment. However, as customers become more focused on security and protecting their own personal information, Google's standards and history make its future increasingly vulnerable.

Known already for tracking customers' searches in an attempt to provide more relevant results, the company took an even riskier step earlier this year with its new privacy policy that allows the search engine to make users' browsing history available to all other Google products. With the number of available search engines in no short supply, customers could quickly and easily be turned away if such tracking standards fail to ease up. With shares of Google currently at all-time highs, it also may not be wise to continue to buy here if they don't.

Finally, there's Amazon. The company has been credited with crippling businesses such as Best Buy (NYSE:BBY) via cheaper prices, but it's what the company has failed to deliver to investors that should make the most headlines. For all its sales and popularity, the company is left in a steep upward battle to defend a ballooning P/E ratio that now stands over 300. Overall, it's a ratio that will rake in even more negative headlines after the company reports what is projected to be a third-quarter loss later this month.

In the end, investors should remember that shares of the big name corporations will always generate more headlines and publicity. They will undoubtedly draw higher volumes along with seismic investor interest. However, that doesn't mean they are safer investments. In fact, they just might be even riskier.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.